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Extenuating circumstances that allow councils to avoid the tendering process

The recent decision of SOCARES Support Group Inc v Cessnock City Council [2012] NSWLEC 23 concerned Cessnock City Council’s (Council) resolution to not engage in a competitive tendering process under the Local Government Act 1993 (NSW) (Act) before entering into a contract for the provision of pound services with the Royal Society for the Prevention of Cruelty to Animals (RSPCA).

The decision of Justice Pain provides some interesting commentary regarding the breadth of situations where councils can legitimately circumvent the traditional tendering process and simply award an entity a contract of the sort set out under 55(1)(c) of the Act.

Background

The Council considered that a satisfactory result would not be achieved by inviting tenders because of firstly extenuating circumstances and secondly the unavailability of competitive or reliable tenders for the following reasons2:

the RSPCA is the only organisation available within the area that has an industry best practice regional animal shelter capable of providing the professional animal care and management required of Council under legislative requirements

part of the RSPCA's core business is to set up and provide professional animal management services to Local Government

Council has an immediate and critical need to address operational requirements and occupational health and safety concerns as addressed in the accompanying report, and

the entry into this contract provides a significant economic benefit to the Council over the term of the contract when compared to the cost of Council providing its own facility.

SOCARES (an incorporated non-profit association) commenced Class 4 proceedings in the Land and Environment Court seeking a declaration that the Council’s resolution at the Ordinary Council Meeting held on 15 June 2011 to enter into the agreement with the RSPCA was invalid on the basis that:

there were no ‘extenuating circumstances’ within the meaning of section 55(3)(i) of the Act, and

the Council failed to consider whether there were ‘competitive and reliable’ alternatives to the RSPCA.

Legislation

Section 55(1) of the Act requires that a council must invite tenders before entering into specified kinds of contracts. The contract for the provision of pound services or a pound facility is a contract falling within section 55(1)(c) of the Act, which provides:

A council must invite tenders before entering into any of the following contracts…

(c) a contract to perform a service or to provide facilities that, by or under any Act, is directed or authorised to be performed or provided by the council

The Council, in entering the contract without inviting tenders, relied upon section 55(3)(i) of the Act which states:

This section does not apply to the following contracts…

(i) a contract where, because of extenuating circumstances, remoteness of locality or the unavailability of competitive or reliable tenderers, a council decides by resolution (which states the reasons for the decision) that a satisfactory result would not be achieved by inviting tenders

Judgment

Extenuating Circumstances

In assessing whether “extenuating circumstances” existed, Justice Pain had to firstly determine the meaning of the phrase. In doing so, she assessed the appropriateness of the definition provided by the Concise Oxford Dictionary where “extenuating” is defined as “acting in mitigation to lessen the seriousness of guilt or an offence”.

Justice Pain determined that such a definition was inadequate and instead made the comment that section 55(3)(i) should be construed as “circumstances which are sufficiently different to justify not calling tenders in order to comply with s 55(3)(i)”.3 Justice Pain found that this applicable definition of extenuating “sets a low hurdle for a matter about which a Council need be satisfied under s 55(3)(i)”.

Interestingly for councils, Justice Pain also made the comment that section 55(3) (i) of the Act “does not refer to ‘exceptional’, defined in various dictionaries as “unusual or extraordinary” which would be a high hurdle if relevant”4 to satisfy.

In any event, the circumstances considered by Justice Pain for the Council to decide that extenuating circumstances existed were that:

“the site is subject to contamination, lacks development consent for its use as a pound, the land is owned by the Department of Lands not the Council and the Department of Lands would not permit an upgrade of aging facilities unless numerous matters were addressed. That the shelter also does not meet the statutory obligations of the Council under several statutes and codes concerning animal welfare is clearly identified in reports of Council officers”. 5

This finding was unnecessary (being judicial review proceedings), however it is important to note Justice Pain’s comment that it “is the Council’s reasonable satisfaction in relation to these matters which must be considered”.6

No competitive or reliable tenders

In terms of the availability of competitive tenders, Justice Pain found that there is no statutory requirement under section 55 of the Act that requires “explicit statements on the Council file which reflected whether there were other tenderers available”.7 Instead, Justice Pain noted that the Council’s decision-making process was to be viewed in its entirety and that Council was not required to identify the unavailability of competitive tenderers, but instead satisfy itself that this was the case.

Summary

Justice Pain’s judgment appears to demonstrate that in order for councils to rely on the exception contained in section 55(3)(i) of the Act, a council must satisfy the “low hurdle” that there are “circumstances which are sufficiently different to justify not calling for tenders”. On this interpretation it appears that the section 55(3)(i) exception could potentially apply to a very broad array of circumstances.

However, with no additional guidance provided in the judgment in regard to the meaning of “sufficiently different”, there is little certainty as to how, and if, this test will be applied in future decisions. Due to this uncertainty, it would be prudent for councils to continue to carefully consider whether the tender process is required and to document the decision making process when awarding contracts, so if a challenge does arise, they can clearly demonstrate that their actions were reasonable.

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Compare jurisdictions: Litigation: Enforcement of Foreign Judgments

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